Remember the Boy Scout motto “Be Prepared”?
Well, it applies in more ways than one way right now! During this very unfortunate pandemic, some financial advisors are finding themselves ill and unable to serve their clients. Illness, whether short or long term, can happen to any of us at any time. If short term illness becomes long term illness or death, how does one take care of their clients and maintain one’s business so that it endures and retains its sale value? Yes, this is a difficult topic, but if you are a financial planner, addressing this proactively is walking the talk isn’t it?
The solution to this challenge is the Business Continuity Plan (BCP), aka the Business Contingency Plan. David Grau and Nicole Frey at Succession Resource Group held a highly informative webinar on the topic, exclusively for financial advisors on April 21st, 2020. Here are some highlights:
BCPs take care of situations of a business owner’s temporary or long-term disability, permanent disability, death or loss of license.
As soon as the business owner is unavailable to transition a business, it’s always a fire sale, but BCPs help to mitigate the damage.
The longer the agreement allows the business to languish in limbo, the lower the value of the business becomes.
Life insurance is NOT a plan, but it can help to fund a plan. The proceeds of a life insurance policy won’t sit down in front of your clients and give them financial planning advice.
Peers, partners or employees make good BCP partner candidates:
Partners may be ideal, but if you are older and they are the same vintage, a younger person may be a better choice.
Employees may be ideal as they know the clients and the business, but make sure that they are capable of handling the responsibility of managing a business.
The person you choose does not have to be your ultimate successor.
My thoughts: Be sure to have a non-complete /solicit clause in any BCP contract. The last thing you need is to lose a client or employee to your BCP partner after you return to work.
Make it easy on your heirs; usually your spouse or children who most likely have to deal with your business.
Communicate your plan to stakeholders including heirs, clients, lawyer, accountant, suppliers and your estate executor.
When communicating with your clients, tell them why you chose the BCP partner so that they have confidence in this stranger which will increase their likelihood of sticking around.
My thoughts: This communication could also be a great sales tool for generating estate planning leads. I.E. “I’m doing this and so should you! Let’s talk!”
Do this sooner than later; while you are young, so that clients don’t mistakenly read between the lines and assume that you are actually ill-now!
Draft and file the intro letter that would be sent to your clients if a situation arises.
Start the BCP process by having a business valuation done and refresh it annually or semi-annually. This way you, your heirs and your BCP partner know what it’s worth; with and without you in the picture.
Have a signed, legal agreement; Succession Resource Group has been kind enough to provide their BCP template until May 22, 2020:
My thoughts: This template may be based on US laws which may not apply in Canada, so be sure to have it reviewed by your Canadian lawyer.
Given that less than 15% of financial advisors have BCPs, I urge you get your BCP in place! If the template doesn’t fit your needs, Succession Resource Group is ready and able to provide tons of advice and a custom solution for a very reasonable rate.
My thoughts: If you are ever seeking financing for a book of business purchase, depending on the security package, lenders may want to see a sound, signed BCP… another reason to put this in place!